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Are 85 Percent of Law Schools Really Losing Money?

By William Peacock, Esq. on November 13, 2013 | Last updated on March 21, 2019

Well, we wouldn't be surprised.

We've covered declining applications and demand. We've seen that very few schools are actually cutting seats to compensate. (In fact, some have actually added seats.) And we all know how desperate schools are to maintain their rankings.

How do you maintain your ranking? Bribery, through scholarships (maintaining high admissions standards is key), and faculty salaries (academic reputation counts too).

More scholarships, and more salaries, with less revenue means: red. It also makes a blogger's estimate, that 80 to 85 percent of schools are losing money, completely believable.

Paul Campos's Estimate

On the Lawyers, Guns, and Money Blog, Paul Campos throws out the massive system-wide operating loss figure, plus others. Despite scholarships aplenty, enrollment is down 25 percent since 2010. And though schools continue to hike the "sticker price" of tuition, revenue is down as well, due to those scholarship discounts. In total, he estimates that revenue, on average, will be down 15 percent this year.

And with schools never running a surplus (have to fluff that ranking, after all), that is what leads him to the 80 to 85 percent figure, one that he calls conservative:

"Note that this estimate is conservative, in that it treats state tax subsidization at public schools as operating revenue rather than an operating subsidy. It is also conservative in that it assumes that no universities maintain long-term budgetary policies that require their law schools to provide subsidies to the rest of the campus, in the form of significant revenue over expenses (aka, the infamous "cash cow" model of legal education)."

Where does his data come from? He studied a "representative sample" of law school budgets, obtained from records requests, private parties, and other sources. We can't verify the methodology or the numbers, but considering the continual decline in applications and LSAT takers, his estimates can't be too far off.

In fact, with the most recent LSAT demand numbers, the demand for seats is almost certainly going to get worse over the next year or two.

What Does This Mean in Real Life?

For one, we've got to be getting closer to the breaking point. How long can schools operate at a loss before they give up on rankings, and focus on finances? And how long will universities subsidize money-losing law schools before shuttering them or forcing changes (like the elimination of tenure, cutting of seats, etc.).

For applicants though, if you're crazy enough to think that you can make it big in the legal industry, now is the time to try. If you can catch that last wave of rankings desperation with your mediocre (or better) admissions numbers, you may just be in line for a scholarship. Or you could just take $1,000 to do something else with your life.

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